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India's infrastructure shortages have hurt its growth potential as well as export/import- competing sectors, contributing to rising trade and current account deficits, credit rating agency Moody's has said.
It said however that the country could attract private investments in the sector over the next 12-18 months despite slowdown in growth, as the demand for infrastructure remains strong and the interest rates are declining.
"Infrastructure shortages are a constraint on India's Baa3 sovereign rating... This has hurt potential growth, as well as the competitiveness of its export and import-competing sectors, thus contributing to its trade and current account deficits," Moody's said in a new report on the sector.
Earlier this year, it had reaffirmed sovereign credit rating of India at Baa3, which indicates investment grade, with a stable outlook.
The global agency has also said that India's recent reforms do not address all the regulatory, financial and pricing constraints on infrastructure investment.
Meanwhile, as part of various efforts to spur infrastructure growth, the government set up Cabinet Committee on Investment (CCI) under Prime Minister Manmohan Singh in December last year to accord fast track clearances to mega projects.
On the positive side, Moody's said India could still attract private investment because the policy changes coincide with a conducive financing environment characterised by low global interest rates and falling domestic interest rates.
"Moody's stable outlook on the sovereign rating assumes that infrastructure investments will increase over the next 12-18 months, as the country's medium term demand for infrastructure remains robust despite the recent slowdown in GDP growth," it said.
The report further said that while pre-election politics pose risks, these risks are not exclusively negative.
"Now, as incumbent governments seek to revive sluggish growth ahead of state and national elections in 2013 and 2014, they may accelerate policy implementation in order to attract investment," it said.
Moody's officials are scheduled to meet the Finance Ministry officials next month.
Earlier this month, the Finance Ministry had made a strong case for rating upgrade of Indian economy by global agency Fitch on the back of increasing investments, declining import of gold and government's commitment to fiscal prudence.
